After years of legal wrangling with the U.S. securities regulator, President-elect Donald Trump's win was taken by the crypto industry as a definitive sign that their courtroom fights and enforcement pressures would be cast away when he takes the oath of office again.
But shedding the enforcement legacy of Securities and Exchange Commission Chair Gary Gensler is not quite that simple, according to former agency officials and lawyers interviewed by CoinDesk, some of whom now represent crypto clients.
While an incoming chairman appointed by Trump, a recent crypto convert, could effectively clear the decks of future enforcement actions, dealing with the many cases already being litigated is a stickier prospect. Turning the SEC ship could take several months into 2025 — maybe longer. And even then, the lawyers say, dramatic case dismissals might not even happen.
What may be the most prominent of those outstanding federal cases is the SEC's battle with Ripple Labs, representing the first big dispute in which the agency accused the company of acting as a securities exchange without registering. The chairman then was Jay Clayton, not the industry-loathed Gensler. And the president who appointed him? Donald Trump.
"The reality is that the SEC's current approach to crypto really began under the last administration," said Ladan Stewart , a partner at White & Case who was a top enforcement lawyer at the SEC and led some of its big crypto cases.
"Gensler gets a lot of heat in the press about the Ripple case, but that case was actually brought in the waning days of the Clayton SEC," Stewart said. "In many ways, the SEC approach to crypto under Gensler is just a continuation of what the Clayton approach was."
Read More: Gary Gensler's Contentious Reign Over Crypto Approaches Its Twilight
The agency will now have some questions to answer anew: Does the legal standard known as the Howey test properly account for crypto tokens as securities or not? Do crypto securities keep the securities label when they're traded on secondary markets, such as Coinbase Inc.? Will the SEC fall back on Howey to police bad behavior in the crypto markets that would remain out of its reach if it doesn't pin its securities tag on the involved assets?
On the first question, the agency has — since Clayton — viewed the basic business model of crypto platforms as a violation of securities law. Many tokens are securities, the agency has found, and they can't be legally traded if the exchange isn't registered. That's at the heart of the Ripple case and the enforcement action against Coinbase (COIN). Unlike the SEC's more familiar Wall Street cases that usually don't pose make-or-break threats to the involved companies, this core question decides whether the most prominent crypto exchanges can move forward in the U.S. or not.
Are crypto tokens securities?
"When I arrived in 2021, the commission under Chairman Jay Clayton had already brought some 80 actions, including the Ripple case , against participants in the crypto markets that were not following the common-sense rules of the road," Gensler said in a Thursday speech to the Practising Law Institute, noting that on his watch the agency "has continued that vigilance."
The agency, which didn't respond to a request for comment on its current legal strategy, has put the weight of its crypto position on a U.S. Supreme Court ruling known as Howey, which defines what makes an asset a security. So far, the agency has had a mixed record of crypto decisions in the frontline federal courts.
All of its cases asserted "very strong claims of violation of law," noted Patrick Daugherty, a former SEC lawyer who now represents crypto clients at Foley & Lardner in Chicago. The agency likely needs to go back and take a close look at them one-by-one, he said, and "each one has to be determined on its own merits."
If nothing had changed, the cases would likely have landed in the Supreme Court's lap. But the return of Trump — the self-declared "crypto president" — will produce a new Republican leadership at the agency that is probably going to look more favorably on each of the major crypto cases.
"In the most extreme case, they could simply dismiss," Daugherty said. But dumping the cases abruptly is "a big ask and might not be justified."
The alternative could be structured settlements in which crypto firms don't admit wrongdoing but agree to stay inside whatever guardrails the agency sets down.
"Those things take a little bit of time to put together and do correctly," Daugherty said.
"I do think that it would be foolish to expect any significant change on the very first day," said Paul Grewal, the chief legal officer for Coinbase, who has led the company's fight with the SEC. But he told CoinDesk he does expect Trump's team to move swiftly, despite the messy track record of his first term in the White House. "I will gently disagree with those who suggest that this will take forever."
Grewal's first choice is complete dismissal, but he suggested he's open to discussion.
Need a commission majority
On all the crypto cases, Anne Kelley, a longtime former SEC official who is now at Mercury Strategies, agreed that "the SEC could vote to stop litigating or to settle — maybe on the cheap," she told CoinDesk. "But that decision can’t be made unilaterally by a chairman. It needs to be voted on by the commission."
The problem for all of the major decisions — dismissals, settlements and enforcement actions — is that they can't be handled only by a new chairman and the senior legal staff he or she brings in.
At the federal appellate court level, for instance, the agency's general counsel supervises those matters, according to Tom Krysa, another former SEC enforcement lawyer who also works at Foley & Lardner in Denver. While that office may be able to pursue a stay (a formal delay) under the close watch of the chair's office, it would need the commission's majority approval to withdraw an appeal entirely.
If Trump promotes Republican SEC Commissioner Mark Uyeda to be acting chairman of the agency in January, as is widely expected, Uyeda would still only have one other Republican on the five-member commission for a time. Even if Gensler chooses to leave the agency entirely after his chairmanship, rather than stay to finish his term as a commissioner that ends in June of 2026, there are still two other Democrats there who can stand in the way of a pro-crypto shift.
While Commissioner Caroline Crenshaw's term expired in June, she's entitled to stay on until the end of 2025 or until she's replaced by a candidate who survives what can sometimes be a months-long confirmation process conducted by the U.S. Senate.
In the nearer term, what the agency can quickly change is how it's handling cases that haven't yet been brought or investigations still short of their conclusions.
Stewart's guess for the immediate future: "We're not going to see registration-only cases" like the ones that have plagued several prominent crypto firms.
Coinbase's Grewal said he assumes the new SEC will quickly begin conducting "a careful separation of those cases that focus on fraud or scams" from the ones that are more technical in nature "but haven't resulted in any consumer harm whatsoever," such as the registration complaint against his company.
For his part, Commission Uyeda has said he favors a halt in new actions against crypto firms for registration violations while the regulator figures out that process.
"We need to lay out some clear guidance and interpretations on what exactly falls within and falls outside of the securities laws," Uyeda was reported as saying.
John Reed Stark, a former SEC chief of the office of internet enforcement, said in a live session on X earlier this month that the crypto industry's weight has been felt and it'll probably get a very friendly SEC leadership. The eventual new enforcement director will be "the most important of all the positions that the chair will pick," he said, and they'll look at all the crypto cases — investigations and litigation — and likely direct all the resources to the "cases that involve egregious fraud" and pull the plug on those that don't. So crypto enforcement wouldn't stop entirely, but its nature could shift.
"It'll be a very important transition; a lot of money is at stake in these cases," Daugherty said. More than that, he said, "the industry's future is largely at stake in the United States."